Nvidia stock rises after Meta deal, but AI financing risks linger

Nvidia stock NVDA rose on Tuesday as the chipmaker announced a $3 billion investment in Meta Platforms’ equity offering, strengthening their partnership as competition in the artificial intelligence infrastructure market intensifies.

Nvidia shares gained around 1%, while Advanced Micro Devices (AMD) climbed more than 5% after announcing a separate $1 billion investment in Meta’s offering.

Meta shares slipped about 1.1%, while Broadcom rose more than 3% in trading.

The investments come as Meta expands its AI infrastructure and develops its own custom chips, raising questions about how Nvidia, AMD and Broadcom will compete to supply the technology powering its services.

Nvidia and AMD invest in Meta's AI expansion

Nvidia said on Monday that it would invest $3 billion in Meta’s recently announced share offering.

As part of the expanded partnership, Meta will increase its deployment of Nvidia hardware to support its AI agents, while the companies explore further technological collaboration.

AMD announced a separate $1 billion investment in the offering on Tuesday.

The company said its Helios server racks would support Meta’s AI models and services.

The arrangements highlight how major chipmakers are seeking to strengthen relationships with large technology customers investing heavily in AI infrastructure.

Nvidia has previously invested in smaller AI startups and hardware suppliers.

Its investment in Meta, however, involves a major publicly traded customer that already purchases substantial amounts of Nvidia hardware.

Meta is also placing its Muse AI agent at the centre of its AI strategy, increasing the importance of the computing infrastructure needed to develop and operate its models.

Nvidia and AMD may be seeking to maintain their positions as Meta expands its computing capacity and considers alternatives to commercially available AI chips.

Meta's custom chips pose a challenge for Nvidia

Meta is reportedly planning to begin manufacturing a new in-house AI chip from September, adding another dimension to the competition for its infrastructure spending.

The company has also worked with Broadcom on custom chip development.

Broadcom has indicated interest in participating in Meta’s equity offering, while its CEO, Hock Tan, serves as a strategic adviser to Meta’s board.

The involvement of multiple chipmakers suggests Nvidia's expanded relationship with Meta will not necessarily translate into an exclusive supply arrangement.

For Nvidia, investing in Meta could help reinforce demand for its hardware while reducing the risk that the customer shifts a larger share of its spending towards internally developed chips.

However, the company faces competition from AMD and Broadcom as Meta evaluates different technologies for its AI systems.

Nvidia's AI financing strategy draws scrutiny

Nvidia's investment in Meta also highlights its growing role in financing the broader AI infrastructure build-out.

The company has entered into arrangements with businesses that purchase its chips and has supported financing for data-centre projects.

Earlier this year, Nvidia agreed to guarantee up to $105 billion in conditional lease and power payment obligations tied to an OpenAI data-centre project in Ohio.

The arrangement followed earlier discussions of a guarantee of as much as $250 billion, which was subsequently scaled back.

Nvidia also agreed to invest $1.5 billion in SB Energy, the project’s developer, and supply the facility’s chips.

The guarantee is a contingent financial obligation, rather than a direct $105 billion investment in OpenAI.

Nvidia has also agreed to purchase unsold cloud-computing capacity from CoreWeave and entered into arrangements with cloud-computing companies in Australia.

These deals have raised concerns among some analysts and investors about the potential risks of financing customers that subsequently purchase Nvidia products.

Critics have drawn comparisons with the dot-com era, when equipment suppliers financed customers to support demand for their own products.

Nvidia CEO Jensen Huang has rejected criticism that such arrangements amount to circular financing.

When the OpenAI deal was announced in August, Huang said in an X (formerly known as Twitter) post, "Is this circular financing? No. OpenAI will pay the lease."

Earnings from major technology companies this week will give investors fresh evidence of whether AI spending is generating sufficient returns to support further investment.

“One of the key catalysts for Nvidia this week will be earnings from major technology companies, including Amazon, Alphabet, and Microsoft. Investors will be looking beyond headline AI spending figures to assess whether these companies are generating sufficient revenue growth and business returns to justify continued investment," said David Merry, CEO of Kyro.

"For Nvidia, this is particularly important because its growth outlook is closely tied to the sustainability of customer spending. If earnings point to strong monetisation of AI investments, that could reinforce confidence in the current spending cycle", he added.

Merry noted that if companies’ rising AI spending fails to translate into stronger returns, investors may question whether the current pace of investment can be sustained.